From the CEO’s Desk: Business Valuations and Divorce

Whenever the concept of valuing a business features in a conversation, the subject matter generally has to do with the stock market. Indeed, when it comes to publicly listed stocks, a business valuation often proves an integral part of any full-time investor’s investment thesis.

Despite the strong tendency we have to associate business valuations with the world of stock investing, there exist several other instances wherein business valuations are relied upon. Some of these use cases include selling a business, submitting an insurance claim, and refinancing a business loan.

Another area where business valuations are commonly utilised is divorce settlement. Below, we detail why this is the case, before outlining the options available to divorcees – whereby one (or both) spouse(s) operate a business – requiring a business valuation.

Where business valuations fit into the divorce process

The division of property is a necessary – and often complex – process that needs to be carried out when a marriage break-up takes place. Commonly divvied up between the two former partners are assets such as the matrimonial home, motor vehicles, shares, bank accounts, investment property, furniture and superannuation.

When a business is involved in a divorce settlement, its value also needs to be added to this collective asset pool. This is because, pursuant to the Family Law Act 1975, Australian courts categorise a business interest as ‘property’. This applies to all business interests, be they in the form of a partnership, sole trader, company or trust structure.

Unlike the aforementioned assets, however, valuing a business can oftentimes be an onerous, resource-intensive undertaking. In Australia, there exist several methodologies that can be called upon when valuing a business. Knowing which one to use is highly contextual, with the type of business structure and/or ownership position (i.e., controlling or non-controlling interest) typically guiding the valuer’s decision-making process.

Getting a business valued

Initiating contact with accountants well-versed in business valuation – such as various senior managers and partners at Ashfords – is typically recommended to spouses who have decided to divorce.

This recommendation holds regardless of whether the business(es) requiring a formal valuation is (are) shared between the two divorcees or wholly owned by one of them. Doing so together helps ensure that the settlement of shared property is conducted in the fairest, most legitimate possible manner.

Marriage and de facto relationship break-ups are understandably some of the most stressful, taxing times in the separating spouse’s respective lives – not to mention those of their family and friends. This only exacerbates whenever there is a business involved in the divorce settlement, particularly a small, family-run business.

Seeking out a professional to perform a business valuation helps to alleviate some of this stress and, simultaneously, removes the need to learn how to perform a business valuation; a steep learning curve indeed.